I am pleased to report that K3 generated very creditable results for the year.  The trading environment became much more difficult in the second half of the financial year, reflecting the wider economic downturn in the UK and overseas. Results for the year are therefore especially pleasing. Revenue for the 12 months to 31 December 2008 increased by 10% to £37.62m, adjusted profit before tax (note 1) rose by 25% to £5.92m and adjusted earnings per share (note 2) increased by 8% to 18.2p. These results are testimony to our strategy of building critical mass, organically and by acquisition, to establish a dominant presence in our core markets, with results benefiting from a full year's contribution from the three acquisitions we made over the course of 2007.  

Both the Retail Software and Manufacturing Software Divisions performed well, with encouraging new business sales supported by high levels of recurring income from our substantial customer base. As we expected, online retail has remained a strong growth market for K3 as the High Street has increasingly come under pressure and our multi-channel retail solution generated a significant proportion of new business wins over the year.  

Two ongoing initiatives are worth highlighting this year. Firstly, with the expansion in our customer base, particularly over last two years, we are placing more emphasis on selling additional products and services to existing customers while also driving new customer sales. Secondly, in both Software Divisions, we have continued to invest heavily in product development, creating more K3 modules which surround the core software solutions we resell. This allows K3 to maintain its competitive edge and, importantly, helps to improve margins as we retain more of the customer revenues. 

During the year, we conducted reviews of the business to improve operational efficiencies and make changes to ensure that the cost base remains at an appropriate level. In 2008, the reorganisation costs in respect of these reviews totalled £0.2m (2007: £0.15m). In the first quarter of 2009, we have made further reductions to the cost base and will make additional changes as necessary.  

Looking ahead, K3 is one of the UK's largest Microsoft Dynamics business partners and well placed to benefit from Microsoft's ongoing investment in business solutions. While market conditions are tougher, we believe that our cash generative model and high levels of predictable income will continue to underpin our performance throughout 2009 and beyond.

Tom Milne

Chairman